Property owners in the Petersburg borough could see savings on their tax bill in the upcoming year based on a proposed budget now before the borough assembly. That draft plan increases spending in most general fund departments and uses savings to balance the budget.
Alaska Governor Mike Dunleavy eliminated school bond debt reimbursement this year, after cutting it in half last year. That change in 2019 prompted the local assembly to approve a property tax increase on July 4th to make up the unexpected loss of revenue. Borough finance director Jody Tow told the assembly during a May 1st work session that the loss of nearly 470,000 dollars in state funding is the biggest challenge for the borough financially.
“This proposed budget was built assuming that this elimination will stand and that the state will not fund any school bond debt reimbursement,” Tow said. “The governor’s vetoed this funding and unless the legislature reverses this with a three-fourth majority it will not be funded to any municipality in Alaska,”
In making his line item vetoes for the state budget, the governor said those could be made up with one-time federal funding for COVID-19 response. But the borough is uncertain if that’s going to happen without a legislative decision. The state is also cutting a payment to the municipality former called revenue sharing, bumping the state funding loss to over half a million dollars.
To cushion the blow, the borough is proposing to spend 400,000 dollars in savings from a surplus in the general fund from last year. Departments like parks and recreation, police and fire had vacant positions that went unfilled and came in under budget. The borough also saw unexpected investment income and sales tax revenue that year. The assembly approved budget policies back in January including using that past surplus.
The spending plan also uses more of a Secure Rural Schools federal payment to fund the school district than prior years. The budget would continue flat funding of one point eight million dollars for the school district.
Spending down savings will also allow the borough to grant a property tax cut this year. Inside service area one, the old city limits, the tax rate could drop from 12.3 mills to 11.5 mills.
“For a 100,000 property assessment this would mean a savings of 80 dollars from last year,” Tow said, adding, “A 300,000 dollar assessment this would mean a savings of 240 dollars. So you could see this 11.5 mills, and this is for service area one, is pretty comparable to 2017 and 2018. You can see up above area-wide, outside service area one, would be 3.8 mills compared to 4.33 last year and 4.35 the previous year.”
The budget does not set the property tax rate. That’s done by assembly resolution later in the year. However the spending plan assumes that tax cut will be passed by the assembly.
Overall spending in the general fund at nine point eight million dollars represents an increase of nearly four percent. That means spending is going up in most general fund departments. The assembly’s travel and training fund would nearly double to pay for a trip to Washington DC, along with multiple trips to Juneau and Anchorage for the mayor and an assembly member. The budget as proposed would pay for an additional maintenance person and once again create a separate maintenance department for borough buildings instead of having it part of the public works department. It’s a change that is expected to cost an additional 100,000 dollars.
At the same time this budget would reduce funding to the Chamber of Commerce, Clausen Museum, KFSK and Mountain View Manor food services.
Tow told the assembly that the spending plan also does not plan for any raises for department heads or workers represented by the Petersburg Municipal Employees Association, though she said that money could come from elsewhere.
“PMEA negotiations have been postponed because of COVID-19 and they were supposed to begin this last month,” she said. “We did budget for a 15 percent increase in health insurance which we have just been informed that the increase shall be only 0.4 percent, which is fantastic. Instead of removing the additional budgeted health insurance expense though we decided to leave it in the budget to have some extra funding for when union negotiations do occur.”
The budget reflects a one percent increase for electrical workers already negotiated in their contract.
The assembly had some questions about the spending plan.
“With the library and parks and rec(reation) shut down right now, is there, are we moving money that isn’t being used there towards either the emergency things we’re using now or anywhere like that or are they still getting their full budget and it’s just not being used?” asked assembly member Taylor Norheim.
Borough manager Steve Giesbrecht responded that staff in those departments are working on the borough’s COVID-19 response and the municipality is hopeful those costs can be recouped with federal emergency funding. Other employees are furloughed with the community gym and pool closed.
I have not even started trying to fill the (parks and recreation) director position, probably won’t until the fall, or at least start it, purposely leaving it vacant, under the assumption that we’ll have a really difficult time opening parks and rec until we’re passed the danger of spreading the viru,” Giesbrecht said. “So again, the payroll budgets look the same but people aren’t really doing parks and rec or a lot of library work right now.”
Giesbrecht reported to the assembly Monday he did not foresee the community center reopening before August at the earliest. He also does not expect the borough will put on Fourth of July festivities this summer, except for a possible fireworks show.
The assembly also asked about overtime spending in the police and jail budgets. They also asked about whether this could be called a balanced budget.
“The budget balances but it uses reserves which isn’t the normal situation,” Tow responded. “We’re not really in a normal situation right now either. You know there’s a reason why we have budget policies and you know we don’t want to stockpile tax payers’ money. We save reserves for rainy days such as now. And I think that we were thinking that this would be a good time instead of increasing the property tax rate to use some of the reserves this year.”
“Without a lot of direction from either the community or even the assembly, we did not reduce services in this budget,” Giesbrecht chimed in. “And that’s really a factor of if everybody wants the budget to go down as far as what we actually spend then we’ve got to have the conversation about what services everybody wants to stop doing, because it’s, biggest part of our budget is payroll and the only way to affect that is to offer or do less.”
Another unknown for this year is one time federal emergency funding for COVID-19 response. But that’s not a permanent fix. And the loss of half a million dollars in state funding could be a permanent change.
The borough assembly passed the spending plan unanimously in its first reading without making any changes Monday. It takes two more readings before it’s approved.
(Editor’s note: this story has been corrected to reflect a 15 percent budgeted increase in health insurance, not 50 percent)